The federal government’s commitment to reducing its vacant office space across Canberra is having a direct impact on the commercial property market, according to industry experts.

According to commercial real estate agents, the relaxation of a public service recruitment freeze has improved market confidence although this may be tempered by a new savings agenda.

Earlier this year, the government launched “project Tetris” to reduce the amount of empty office space it leased across the country and save taxpayers hundred of millions of dollars in the process.

Commercial agents are also reporting the emergence of a two-tier office market in Canberra, with tenants taking advantage of favourable leasing conditions to secure prized locations.

Government cost saving measures are having an impact on the commercial property market. Photo: Melissa Adams.

A trend report by Frank Knight found vacant office space in Civic and near Parliament had fallen to 8.6 per cent, while secondary areas had reached a historical high of nearly 20 per cent.

“A lack of expansionary requirements from Commonwealth tenants has been the catalyst,” the report said.

Russell Bullen, head of property for commercial firm Quintessential Equity, said the group’s 11,500 square metre property in Woden had been below 10 per cent occupancy for nearly two years as a result of cost saving initiatives.

“I understand that as a taxpayer the efficient use of government leases is a good thing, but project Tetris has often ignored the impact it has on town centres,” he said.

“In Woden, hundreds of public servants have been pulled into Civic and other areas which means they’re no longer contributing to the local economy. It has decimated the town centre.”

Figures detailed by Parliament’s Public Works committee earlier this year found 21 per cent of desk space in Canberra-based government departments remains vacant.

The Frank Knight trend report found vacancy rates were likely to remain at current levels for another eight months as the federal government continued to explore sub-lease opportunities.

“Improved labour market conditions coupled with no new supply will likely see the vacancy rate trend downwards from mid-2016,” the report said.

The report declared 2014 a challenging year for the Canberra market with job cuts leading to an increase in sub-leased space.

“However it appears the market is stabilising with the bulk of government sub-lease space being absorbed and leasing activity beginning to gain some pace,” the report said.

The Department of Social Services, which will spend $343 million on a new Tuggeranong office building by 2032, is one department searching for new alternatives to save money.

“As leases expire, the department liaises closely with the Department of Finance to follow up on suitable accommodation opportunities,” a spokesman said.

“DSS actively pursues sub-leasing of surplus space to other organisations and currently has a number of agreements in place with other departments occupying DSS tenancies.”

The federal government currently maintains 195 property leases in the ACT, 128 in NSW, 86 in Victoria and 72 in Queensland.

During a Senate estimates hearing last month, Finance Minister Mathias Cormann signalled more public service departments could move from Canberra in coming years as the government explores “decentralisation” opportunities.

“This government happens to think that not all of the public service should be based in Canberra,” he said.

“We believe that there is scope and opportunity for further decentralisation of the federal public service and we made a specific commitment along those lines in the lead-up the last election.”

In October, a tender to establish a new headquarters for the Department of Immigration and Border Protection was scrapped after the government abandoned its frameworks for property acquisition.

The move, which was likely to see 4000 Belconnen-based staff relocated, could have saved taxpayers more than $100 million over 15 years according to the Department of Finance.